SPY Trends and Influencers August 27, 2022

Last week’s review of the macro market indicators saw with August options expiration in the books, equity markets saw some profit taking after a 4 week run higher. Elsewhere looked for Gold ($GLD) to continue its downtrend while Crude Oil ($USO) also continued to trend lower. The US Dollar Index ($DXY) continued to drive to the upside while US Treasuries ($TLT) resumed their downtrend. The Shanghai Composite ($ASHR) looked to consolidate between short term and resistance and long term support while Emerging Markets ($EEM) resumed their move lower.

The Volatility Index ($VXX) looked to remain in the normal range taking some pressure off of equity markets and allowing them to move to the upside. Their charts looked strong on the longer timeframe, but still shy of a long term reversal. On the shorter timeframe the $QQQ, $IWM and $SPY were getting a nice reset lower on the momentum measures. As long as they can print higher lows the nascent uptrend should remain. A lower low would deflate the optimism out of the markets.

The week played out with Gold finding support and fielding a weak bounce while Crude Oil reversed up to prior resistance and then was knocked back. The US Dollar ran to a new 20 year high before meeting resistance while Treasuries found support and rebounded late in the week. The Shanghai Composite fell back towards long term support while Emerging Markets failed at yet another test of falling trend resistance.

Volatility rose up off the lows but remained only slightly elevated. This put initial pressure on equities and they responded by starting the week with a 2 day move lower. All found support by Wednesday and reversed to finish Thursday little changed on the week. That ended as they drove lower again Friday after the Chairman Powell speech at Jackson Hole. This resulted in the SPY and QQQ ending at 3 week lows and the IWM fairing only marginally better. What does this mean for the coming week? Let’s look at some charts.

SPY Daily, $SPY

The SPY came into the week pulling back from its first higher high since the start of the year. It gapped down Monday, below the break out level, and held there through Wednesday. Thursday it reversed higher, teasing that it may have printed a higher low to go along with the higher high. That was not to be the case though as it started dropping as soon as the market opened and did not finish until the end of the day when it had lost almost 3.4%. This was the worst day since June 16th. It ended near the lower of the Bollinger Bands® but pushing them open. The RSI on the daily chart dropped through the midline to the lower end of the bullish range while the MACD is crossed down but positive.

The weekly chart shows the pullback retracing 38.2% of the move higher from the June low but closing on the low. The RSI is dropping through the midline with the MACD leveling and still negative. There is support lower at 403.50 and 400.50 then 397.50 and 394.50 before 391.50 and 389.50 then 386 and 382 before 380 and a retest of the lows of the year. Resistance higher sits at 405.50 and 407.50 then 411 and 413.50 before 417 and 420. Pullback.

SPY Weekly, $SPY

With only 3 trading days left in August, equity markets had a week where they went from optimistic to horrified following the Jackson Hole speech. Elsewhere look for Gold to continue its pullback while Crude Oil resumes the downtrend. The US Dollar Index continues to move to the upside while US Treasuries consolidate in their downtrend. The Shanghai Composite looks to continue a short term move lower while Emerging Markets remain in a downtrend.

The Volatility Index is slightly elevated and biased higher making the path more difficult for equity markets to the upside. Their charts took a beating on the short term timeframe, possibly creating a new downtrend. On the longer timeframe there is still the prospect that June was the long term bottom until it is violated by a lower low. Meaning any reversal before then is a positive. Use this information as you prepare for the coming week and trad’em well.

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